North American markets lower as U.S. jobs data fuels rate hike speculations

TORONTO – North American equity markets were sharply lower Friday following a U.S. jobs reports viewed as perhaps solid enough to justify an interest rate hike by the U.S. Federal Reserve.

The S&P/TSX composite index was down 118.10 points at 13,478.31 as commodities declined and a positive report on job creation in August from Statistics Canada was blunted by an increase in the unemployment rate.

The metals and mining sector of the TSX was the lead decliner, falling by more than five per cent.

In New York, markets plunged after the Labor Department reported that the U.S. unemployment rate fell to a seven-year low in August even as employers added fewer jobs than forecast.

The Dow Jones industrial average fell 272.38 points to 16,102.38, while the S&P 500 index lost 29.91 points to 1,921.22 and the Nasdaq was down 49.58 points at 4,683.92.

The U.S. jobs report showed that American employers added a relatively modest 173,000 jobs in August — which was lower than consensus estimates — but also made an upward revision in jobs gains for the two previous months. Meanwhile, the U.S. unemployment rate fell to 5.1 per cent, its lowest level since March 2008.

Just what this will lead the Fed to do remains uncertain.

While the steady hiring could encourage the Fed to raise interest rates for the first time in almost a decade later this month, some market analysts think that a sharp economic slowdown in China that has wreaked havoc on global markets in recent weeks could prompt policy-makers to keep rates low.

“The employment data justifies the Fed raising rates by 25 basis points in two weeks,” said Macan Nia, director of capital markets and strategist at Manulife Asset Management.

However, Nia noted that other factors — including the slowdown in China and a U.S. inflation rate that’s below the Fed’s target — point to keeping rates at current levels.

“If the U.S. was in a vacuum, then they would be very likely to raise rates in two weeks,” Nia said. “The reality is it’s an interconnected global economy and market.”

Meanwhile, the Statistics Canada report showed the economy gained 12,000 net jobs in August as full-time employment grew by 54,400, offset by a drop of 42,400 part-time jobs.

That far surpassed the consensus estimate of economists, who called for the loss of 4,500 jobs, according to a survey by Thomson Reuters. But with more people looking for work, the unemployment rate ticked higher to 7.0 per cent from 6.8 per cent, where it had held steady for six consecutive months.

The loonie gave back 0.40 of a U.S. cent to 75.39 cents US.

On the commodity markets, the October crude contract lost 70 cents to US$46.05 barrel, October natural gas gave back seven cents to US$2.66 per thousand cubic feet and December copper plunged seven cents to U.S. $2.31 a pound. December gold fell $3.10 to US$1,121.40 an ounce.

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